The almost inevitable response to Action Aid's report on tax haven abuse by major corporations has already arrived on this blog. It says (and I have tidied the grammar a little):

The whole tax haven thing is nonsense, Where do companies like Vodafone get the money to pay taxes? From their customers, so by asking for corporations to pay more taxes you are implicitly saying you want the cost of things you goods/services they provide to go up in price.

Such claims are simply wrong. This may be how the world work's on the neoliberal economists blackboard. It;'s not how the world really is.

Let me for a moment unpack some of the assumptions inherent in this claim:

1) A company only generates cash inflows from customers;

2) The company has no choice about paying tax;

3) The company can always pass any tax charge it has to pay on to customers;

4) The company is a neutral party in all this: a rational, automaton, independent agent;

5) No one else but customers can pick up the tax charge placed on a company and it follows that customers get the benefit of law taxes.

None of these things is true.

First, companies are massive recipients of tax benefits. They get trained staff, for free. Their staff get healthcare provided for free, meaning they turn up in the morning. When staff can't work they're cared for by the state, for free. Much of staff's pension is paid for by the state, not by an employer. The company enjoys the infrastructure of the satte, for free (or very little). Even the company structure itslef and the right for it to claim property is provided by the state, for next to nothing. So it's not true that cash into companies comes only from cutsomers. Massive subsidies come from the state to all business.

Despite this a company has a massive choice about where and how to pay or not pay tax, which is what Action Aid were highlighting. It can relocate profits almost at will, and as the report from the US I have referred to this morning shows, that is exactly what they do. And they take these choices to benefit a particular group in society - and that's the well off and not customers.

Third, there's no evidence at all that companies can necessarily pass on all tax they pay to customers. If they can then it is very obvious that competition is not working - because if it were that would not be true. So free-marketeers can't have it both ways. Either competition prevents generic passing on (generic VAT rises perhaps apart) of the fact that tax is passed on proves that monop[oly power is in operation and a bigger issue arises of tackling it.

Fourth, companies are biased in this. I again refer to the report from Carl Levin in the US. If tax haven use clearly benefits a few at cost to the many companies choose to do that. Never ever believe any claim that companies are neutral agents: they are not. They exist to redistribute income to their management first and members second unless competition prevents it. The evidence is clearly that the competitive pressure is not there - but in that case that is the issue that needs to be addressed.

And finally, if real markets existed then shareholders would pay the cost of extra tax just as right now the benefit of that abuse does not flow to customers but goes instead to shareholders. And if the beenfits flow to shareholders then we need to ensure that the costs do too. But tax havens prevent that. And that's why they matter. Because they increase poverty. Ands that's not by chance. That's by choice. And it is a choice that has to be prevented.

14 Responses

As John Kay said, “Today’s political outrage is humbug. Havens exist only because larger states allow them to exist, and larger states allow them to exist because the customers of havens are the rich and powerful. In the 1860s, the typical client of a haven was a patron of Blanc’s casino: in the years after 2000, the typical client of a haven was a hedge fund registered in Grand Cayman. Plus ça change, plus c’est la même chose.”

You note: – “in the years after 2000, the typical client of a haven was a hedge fund registered in Grand Cayman”

And South American drug barons
And giant corporations involved in African “extraction” industries
And the proceeds of international people trafficking
And the proceeds of prostitution and protection rackets
And the plunder accumulated by African despots
And Foreign Aid gone “astray”
And terrorists “campaign” funds
And the proceeds of illicit arms deals

In fact just about the entire proceeds of everything that is vile and abhorrent (which may also include certain hedge funds) to decent, self respecting human beings.

Britain’s tax authorities have given Goldman Sachs an unusual and generous Christmas present, leaked documents reveal. In a secret London meeting last December with the head of Revenue, the wealthy Wall Street banking firm was forgiven £10m interest on a failed tax avoidance scheme.

According to FT, Revenue & Customs said “the picture Private Eye [the story was leaked to the Eye originally] presents is incomplete and therefore fundamentally flawed but taxpayer confidentiality prevents us from correcting the story in detail”. Hm, they would say that, wouldn’t they.

Richard, you have analysed the benefits available to UK based corporations in an interesting way here – it highlights points which are not often shown in clear focus by economists. While the UK needs to induce profit-making corporations to base their operations here to generate employment and profits, the contract or agreement is effectively broken if the corporations devise devious ways of avoiding a fair tax contribution.

The Guardian’s article above indicated by larry Levin illustrates this view very clearly. GS could offer a much better corporate image simply by paying £10 million which is a trivial sum to them, but for whatever reason, they must be seen to win at all costs. Perhaps we can persuade them to think again.

If the hackergate story can teach us anything it is that policeman can be bought, if they can be bought what about regulators, in the US “regulatory capture” defines the situation where powerful companies become enmeshed with the people supposedly regulating them. Sir Paul Congdon wrote a report about the endemic corruption in the metropolitan police. We should do a sting on these tax officers.

If one were being charitable one would call Dave Hartnett a blundering fool. If being suspicious, one might suspect him of ulterior motives, in which case criminal investigation should follow. Either way he is, as is all of the current HMRC management and its organisational ethos, “not fit for purpose”.

For that reason he should go, without compensation as he has already cost us billions and (because I find it hard to believe a competent tax inspector is thick) I would hope he might soon get a knock on the door from Knacker of the Yard.

All the things you list that companies get “for free” are paid for by taxes, a lot of which is corporation tax, which is paid by companies. So it is nonsense to suggest that companies get these things “for free”.